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Hungary’s Central Bank Raises Interest Rate After All to Temper Inflation

Balázs Frei 2020.09.25.

Despite the Monetary Council of the National Bank of Hungary keeping the base rate steady at 0.60% on Tuesday, the institution’s directorate decided to effectively increase the interest rate after all on Thursday by accepting new week-long deposits at 0.75%. In answer to Reuters’s query, the bank said it did so in order to prevent the escalation of inflationary risks.

Raising the interest rate on week-long deposits by 0.15% in effect means an increase in the base rate by the same amount because this rate has been the definitive instrument used by the central bank in the past couple of months for signaling the interest rate, according to Portfolio.hu. Up until now, there has been no difference between the rate set forth by the Monetary Council and the rate of week-long deposits determined by the bank’s directorate.

The Central Bank has been using instruments of active liquidity management to effectively set interest rates for quite a while. It introduced week-long deposits in response to market turbulence caused by the coronavirus pandemic. Up until now, there was no limit on the amount of such deposits made available on the market.

So far, the move appears to be successful. The Forint strengthened against the Euro since the markets opened on Thursday morning, going from above 366.19 at 7 a.m. to 363.15 by 2 p.m.

Featured photo illustration by Szilárd Koszticsák/MTI